Capital gains on development agreements include accrued flat consideration when possession and control pass to the developer.

Capital gains on a development arrangement arise in the year of transfer where possession, development rights and effective control pass to the developer. The note explains that the deeming rules for transfer cover transactions in part performance of a contract and arrangements enabling enjoyment of immovable property, so the development agreement and irrevocable power of attorney triggered taxability. It also states that the taxable full value of consideration is not confined to cash already received; it includes the accrued right to receive flats under the agreement. On that basis, the capital gains were chargeable in the relevant year.

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Issues: Whether the transfer under the development arrangement attracted capital gains tax in the relevant year and whether the value of the cash and flat consideration formed part of the taxable full value of consideration.

Analysis: Sections 45 and 48 of the Income-tax Act, 1961 charge capital gains in the year of transfer and require computation on the full value of consideration received or accruing. Clause (v) and clause (vi) of section 2(47) enlarge the definition of transfer to include transactions allowing possession in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 and transactions enabling enjoyment of immovable property. On the facts, the development agreement, the irrevocable power of attorney, the transfer of development rights, and the handing over of effective control to the developer showed that transfer had taken place. The consideration was not limited to cash already received but also included the accrued right to receive flats under the agreement.

Conclusion: The capital gains were rightly brought to tax in the year of the development transaction and the assessee's challenge to the addition failed.

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